This article has been written by Pradhnya Deshmukh, pursuing the Certificate Course in Trademark Licensing, Prosecution and Litigation from LawSikho.

Introduction

Intellectual Property (IP) and trademark commercialization is gaining momentum due to the vast scope of exploitation of financial success of trademarks in the modern open market. An organization’s business objectives, nature and form of intellectual property and the economic resources at the disposal are the factors on which the selection of the best commercial tool for IP commercialism is chosen. Trademark assignment and knowledge transfer in the form of licensing are the two most well-known modes for commercialization used by IP proprietors due to factors related to its nature of risk. IP Proprietors can utilize rights transferred by way of such does in exchange for consideration in the form of lump-sum monies, royalties etc.

This article emphasizes upon effective Trademark Licensing and Assignment Agreements with special emphasis on Intellectual Property valuation and key provisions or clauses that must be considered by business/brand/trademark owners in conducting transfer of the rights in their intellectual property.

Trademark Assignment Agreements

Assignment transfers the interest and title in the trademark and consists of a collection of rights the transfer of which may be done in whole or in part, limited by a time-period, territory or include the rights exercisable in relation to the trademark. Assignment agreements are exclusive in nature and takes away a set of rights in the assignor and vests it in the assignee in exchange of consideration. Once an Assignment Agreement is executed, the original proprietor can not meddle with the exercise and enjoyment of rights by the assignee/buyer.

Trademark Licensing Agreements

Whereas, Licensing does not consist of transfer of title or interest, it refers to a limited consent or grant of rights which the licensee may exercise which would otherwise be illegal if not for the said grant or license. It is a mere authorization by the IP proprietor permitting the licensee to act only in ways allowed by them. Licenses may or may not be exclusive and similar licenses may also be granted to multiple individual parties by the IP proprietor. 

IP Valuation

The value of a trademark is directly proportional to its earning power which is dependent on factors such as sale prices and profits, goodwill in the intangible asset, competitive threats and marketplace risk factors. Trademarks in themselves are not of value but gain such value based on the extent of positive connotation related with it and the goods or services associated with it in the market and the subsequent customer loyalty based on such positive connotations. Based on this, trademarks have the potential to gain valuation even higher than the annual turnover of companies. In 2020, as per the Interbrand Best Global Brands 2020 Report, top trademarks such as Apple, Microsoft and Amazon have gained trademark valuation by 38, 53 and 60 percent respectively since 2019 and valued to be at 332.9, 160 and 200.6 billion US dollars respectively.

Following are the trademark valuation approaches most commonly used as a guide:

Income Approach – The valuation is based on past and future ability to generate income, revenue and thereby, profits.

Following are the parameters for calculating based on income:

1. 1. Amount of income it is capable of generating
   2. The time period for which it can generate such amount
   3. The cost for the trademark to generate such an amount in the stipulated time frame.

The most obvious way of making such a valuation is by deduction of the book value of assets from the market value of a business. This would need for all assets owned by the company to be valued and identified. Another method of calculation is by comparing the market value of competing businesses operating in the same product or service category. Yet another technique used is where the business hypothetically did not own the trademark, the income saved on trademark licensing and the payment of the royalties would be the ultimate value of the trademark. 

Cost Approach – The actual cost incurred by a business in the process of making, developing, maintaining and advertising a trademark can be converted to have some meaning in terms of trademark valuation. The cost to acquire a trademark with the current goodwill it holds in the market is known as the replacement cost method used for trademark valuation. Since various other factors involved in the actual valuation of a trademark such as market factors, competitors, nature and longevity of the product or service, are not considered under this approach, it is not advisable to just rely on this method of valuation. 

Market Approach – Under this method, individual factors of the product or service aer factored in to gain a working idea of the market value of a trademark. This method is often based on comparable market transactions but is limited by having the need for a market of buyers and sellers engaging in the said business. This requires the said process to be public however, in practice, trademark market transactions are not conducted in open.

Tax Considerations

Tax implications for trademarks are subjective to the laws of a country. Transfer of rights in a trademark causes gain in income by way of considerations such as royalties which are tax deductible. Similarly, it is also a cost for the buyer/licensee/assignee and hence, is also a deductible expense for them.

Key Clauses and Provisions in Trademark Assignment and Licensing Agreements 

As a business owner, it is pertinent to note that the trademark laws of various countries such as India make a requirement for Assignment Agreements to be made in writing in order for them to be effective and enforceable.

• Description of Parties

A proper description of all parties involved in the said translation along with the express mention of the nature of such parties and their names, ages (if applicable), and addresses. It is preferred to have a brief way of referencing the said parties further in the agreement for the sake of brevity.

• Work/Invention

In such agreements, it is advised to have specific definition and description of the trademark and the products of service involved for which the trademark is being assigned or licensed herein. There must also be a brief way of referencing to the same for the sake of brevity.

Example Clause: “SECTION 1.19 “Product” means (A) the chemical compound mecamylamine hydrochloride, and (B) as of the Closing Date, the formulated tablet containing mecamylamine hydrochloride as heretofore marketed by Seller in the United States under the trademark INVERSINE®, and (C) after the Closing Date, any tablet or other formulation of mecamylamine hydrochloride or any derivative thereof (including but not limited to any stereoisomers, either separated or combined, any hydrates, any solvates and any crystal forms).

SECTION 1.27 “Trademarks” means the trademarks and trademark registrations for the Product as set forth in Schedule A. “Trademark” means any one of the Trademarks. The Trademark shown on Schedule A as being currently registered in Somalia is referred to hereinafter as the “Somali Trademark.””

• Assignment Clause

The express language, “hereby assigns” which indicates the assignment of rights in an existing or future trademark.

Example Clause: “Rights granted– {Assignor} hereby grants, conveys and assigns to {assignee} all the rights in the {trademark}, including without limitation the following exclusive rights throughout the Territory (as defined in the {territory clause number}) and for the Term (as defined in the {Term clause number}) – * insert a list of all rights in relation to the {trademark} that are being assigned *”

• Clause elaborating the Rights of the Assignee

All intended rights of the assignee as agreed upon by the parties must be contained herein. They are most often adopted from precedent drafts and are subjective to the nature of trademark being assigned or licensed.

Example Clause: “Rights of the Assignee:  the ASSIGNEE shall be entitled to file any application/s or take any other actions or to make any amendment or connection as necessary in respect of the said Trademarks and copyright application  before  competent  authorities  including  right  to  sue and the ASSIGNOR shall have no objection against the same. Moreover, the ASSIGNOR from the   date   above mentioned   hereby   shall   not   claim   any right   Rights of the Assignee:  the ASSIGNEE shall be entitled to file any application/s or take any other actions or to make any amendment or connection as necessary in respect of the said Trademarks and  copyright  application  before  competent  authorities  including  right  to  sue and the ASSIGNOR shall have no objection against the same. Moreover, the ASSIGNOR from the   date   above mentioned   hereby   shall   not   claim   any right   or   interest   in   the   said Trademarks. Furthermore, the ASSIGNEE will be entitled to use/ enjoy the said Trademarks in respect  of  the  ASSIGNEE’S  business  without  any  objection  and  interruption  by  the ASSIGNOR or any person laying claim under the ASSIGNOR or   interest   in   the   said Trademarks. Furthermore, the ASSIGNEE will be entitled to use/ enjoy the said Trademarks in respect  of  the  ASSIGNEE’S  business  without  any  objection  and  interruption  by  the ASSIGNOR or any person laying claim under the ASSIGNOR.”

• Licensing Clause

A clause indicating and defining the specific rights of use granted to the licensee must be contained herein and the express mention of the wordings “hereby grants a license” is mandatory.

Example Clause: “Grant of License.  The Licensor hereby grants to the Licensee on the terms contained herein a non-exclusive, royalty free license (the “License”) to use the Marks throughout the “Territory” (as defined in the {territory clause number}) in association with the goods and services specified in Schedule A hereto (the “Products”).  The Licensee agrees to use the Marks only in accordance with terms and conditions set out in this Agreement and the Licensor may itself use the Marks in the Territory but may not grant licenses to other persons to use the Marks. Schedule A may be amended to add or delete Marks and/or Goods and Services from time to time, by way of written agreement between the parties.”

This clause must clearly indicate whether the license is exclusive or non-exclusive and the intention of the parties with respect to the sublicense or further transfers of the rights in the said trademark. Permitted and Prohibited uses must also be expressly mentioned and elaborated upon.

• Term Clause

As understood by its name itself, the term clause must clearly mention the time frame within which the said assignment or license agreement for a trademark would operate.

Example Clauses:

Licensing – “Term.  The License will commence as of the Effective Date and subject to earlier termination pursuant to the terms of this Agreement, will expire upon the earlier of: (a) twelve (12) months from the Effective Date; (b) the closing of the Asset Purchase Agreement between the Licensor and Ya Zhu Silk, Inc. referenced in the Master Amending Agreement; or (c) such other date as is mutually agreed to by the parties hereto.”

And 

Assignment – “The rights assigned herein shall be irrevocable and shall be vested in the assignee for perpetuity including without limitation, for the full term of copyright protection everywhere in the world and any and all renewals, extensions and revivals thereof.”

The parties may choose any extent of time limit within which the said agreement would operate; however, the outer limit of the grant would be determined by the term specified by trademark laws of the country.

• Termination Clause

Trademark assignments operate with finality and do not have the scope for termination.

In terms of the licensing agreements, the mode of termination, the effective date of termination and the rights and obligations of the parties on termination must be contained in the said clause. This clause must be drafted carefully for each agreement based on the subjective nature of the parties and their relationship relating to the said agreement and must not be simply adopted from a precedent. For example, where the terms of the agreement can be performed specifically by an individual then the termination by such a person may not be permitted. 

• Territory Clause

The exact geographical extent within which the said agreement would operate is crucial to be mentioned since a single trademark can be assigned and licensed to multiple entities for use or exploitation in different territories. However, it must be noted that assignment to multiple entities may be barred by the trademark laws of certain countries such as India.

• Consideration Clause

The mode of payment and the amount that would be paid in exchange for the transfer in rights and/or interest in a trademark must be clearly mentioned in the agreement.

• Royalty Clause

In consideration for the rights and/or interest in a trademark granted, the licensor or the assignee may require for royalties to be paid which would typically be a portion of the sales revenue earned from the use and exploitation of the assigned or licensed trademark. The structuring of the royalty payment, whether it be a percentage of income or otherwise as per the mutual agreement of parties must be mentioned specifically. The term of royalty payment, the schedule for payment accompanied by proper accounts for the relevant time period, consequences of delay in payment, taxation and the mode or frequency of invoicing must be mentioned herein.

• Indemnity Clause

The assignor must ordinarily indemnify the assignee from any legal costs or proceedings arising out of defective title in the said trademark or for third-party claims of infringement. This clause of special importance in licensing agreement since, the licensee must be indemnified against all illegal uses of the trademark which may arise as a result of such actions of the licensor.

Warranties and representation represent contractual assurances concerning specific acts, the breach of which would lead to an award of damages. Where the effectiveness of due-diligence practices falls short, indemnity and warranties clauses start operating. For example, the assignor’s warranty that it is the owner of the trademark being transferred and the licensor’s warranty on the lack of knowledge concerning third party infringement could be included in such agreements. These clauses widely depend upon the negotiation that must have taken place between the parties and hence, must be drafted while taking cognizance of the nature of relationship between the parties and merely adoption from precedent must be avoided.

• Governing law and Jurisdiction Clause

The law under which the said transfer is taking place must be mentioned expressly especially where the operation of the agreement would be global.

Example Clause: “This   agreement   shall   be governed   and   construed in accordance  with  the  laws  of  India,  and  any  disputes  therein  shall  be  subject  to  the Jurisdiction of courts of Mumbai.”

• Confidentiality Clause

This clause not only safeguards the assignee’s interests but also proves to be a vital shield in case of termination of Agreement as well. A well drafted confidentiality clause would prevent unauthorized access, use or disclosure of confidential information which may end up being fatal for a business. These are also often supported by Non-Disclosure Agreements which allow for injunctive reliefs to be prayed for in litigation of disputes. 

• Power of Attorney Clause

Inclusion of this clause provides for seamless transfer of all rights in a trademark since it facilitates signatures from the authorized representatives or agents of the assignor or licensor.

• Standard Form Clauses: Reliefs, Waiver and Notice

Other than the above-mentioned clauses, all standard form clauses which are generally included in other agreements must also be included in such agreements. Clauses such as “Injunctive Relief Available to the Licensor” and “Waiver” clauses would be beneficial to be added in licensing agreements. Notice clause which elaborates on the nature, mode and method of service of notice by either party under the Assignment or Licensing Agreement must be included.

Conclusion

Due to the immense value in intellectual properties built in the modern day commercial and legal systems a clearly drafted agreement in pursuance of transfer of rights in the same is imperative to properly safeguard the rights of either or all parties involved. Proper strategizing and valuation of the trademark open novel modes for the parties to enjoy the benefits of their intellectual property and therefore, proper management of the same by undertaking due-diligence and appointing an attorney for drafting of such complex agreements would prove to be beneficial for business owners and trademark proprietors.

References

• Deed of Assignment Sample as available at https://www.agip.com/UploadFiles/Countries_Services/253_India/India_DOA_TM.pdf 
• Deed of Assignment of Trademark Sample as available at https://www.ainoglobal.com/Agreements/9_%20Trademark%20Assignment%20Deed.pdf 
• Trademark License Agreement Sample as available at https://www.sec.gov/Archives/edgar/data/1419177/000141917711000018/exhibit10-12.htm 
• European Union IPR Helpdesk, Fact Sheet, “Commercializing Intellectual Property: Assignment Agreements” as available at https://www.iprhelpdesk.eu/sites/default/files/newsdocuments/Assignment_Agreements_0.pdf
• Leo Paul Johnson, “Intellectual Property Monetization”, 6 IJIPL 186 (2013)
• WIPO, Module 12, “Trademark Licensing” as available at https://www.wipo.int/export/sites/www/sme/en/documents/pdf/ip_panorama_12_learning_points.pdf 
• Stuti Bansal, “India: Assignment & Licensing of Trademarks in India” as available at https://www.mondaq.com/india/trademark/202886/assignment-licensing-of-trademarks-in-india 

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